Dina Knight is a veteran of 20 acquisitions. James Aston HR Practice Director at Archer Mathieson, talks to her.
The statistics on M&A continue to point to high failure rates in terms of expectations made versus those delivered. Why is this? The failure rate remains high, although I believe it’s getting better; my understanding is that around half of mergers fail to deliver on the original promise of synergies. It was about two-thirds. I think there are a couple of key reasons. The first is that business leaders are under immense pressure to justify a deal and in doing so it’s tempting to over-forecast the benefits. The second is about planning and execution; either the integration plan is poor and important factors get overlooked, or it’s good but poorly implemented.
Is the importance of HR’s role properly understood in M&A? It depends on the organisation and the sophistication of the HR function but from what I’ve heard from other HR Directors, I think there remains a perception that HR’s role is post-deal, and even then only to deal with ‘softer’ factors. They start on the ‘back foot’ and that’s never desirable.
What is the ideal HRD’s role in the early stages? HRDs should be involved pre-deal, in the qualification of the opportunity and immersed in the harder, measurable side of things. The first priority is to assess the senior team and other key people. This is just as important as the financial due-diligence. It doesn’t happen in general, but I was fortunate to have the opportunity to build a business-focussed HR team early in my last role, during a financial turnaround. We established our reputation by delivering on our promises. That gave me credibility to be at the front line from day one in all the acquisitions we made.
How often do you think this actually happens? From what I’ve heard from my very wide network, I suspect it is all too infrequent.
There can be lots of testosterone-driven hype in the courtship period pre-deal. What’s the best way to manage this? A lot depends on the personalities involved. I think you need to recognise the signs. When you begin to hear unsubstantiated claims about the opportunity, ask on what grounds these are being made: opinions are not the same as hard evidence or facts. You must stay focussed on the facts. Certainly you have to be adroit in your relationships with others but most HRDs are hard-wired this way. I find it’s helpful to get to know people on a personal level where possible. A good sense of humour also helps.
What are the key things you’ve learned about successful integration of two businesses? Without early involvement of HR pre-deal, expect avoidable costs and problems later on. It’s easy to trumpet successes. It’s less easy, but important, to be open and honest about what’s not going so well. Stay focused on the vision and work with the key players. Giving individuals from the acquired company long-term, real career development opportunities in the new organisation is critical. This should be supported by an attractive remuneration strategy. Deliver what you’ve promised or risk losing the credibility you’ve spent years building.
What mistakes should other HRDs seek to avoid? What are the main traps and pitfalls? The key things are: poor integration planning; under-communicating; over-committing; under-resourcing. Then I’d add that however good your plans, flexibility is key – there is no one-size-fits-all approach. And don’t think the job will be done in 90 days – most integrations take at least 12 months.
How do you manage the disruption to BAU for HR during the integration period? I’ve always back-filled the existing permanent teams with good interims. That allows me to run the integration with the people who will be around afterwards. They are challenged but they learn new skills, and the company retains knowledge for next time. I have also used specialist HR interims. It is important to budget for extra support, detailing what is required and for how long. Developing a strong relationship with one or two interim HR service providers pays off in this respect.
What is the most important advice you could offer? Be involved upfront, be open and transparent, and always deliver what’s promised. It’s not just your personal reputation and credibility that’s at stake, but that of the entire department. When companies use outsiders to do cultural due-diligence of an acquisition target, it’s a signal HR has failed.
